Republic of Moldova: Financial Sector Assessment Program-Bank Crisis Resolution-Technical Note

IMF Staff Country Reports, February 29, 2016

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Canonical URL: Republic of Moldova: Financial Sector Assessment Program-Bank Crisis Resolution-Technical Note

The FSAP mission reviewed the bank crisis resolution framework in Moldova and concluded that authorities should give a high priority to crisis resolution preparedness.
The banking system is concentrated and “dominated by six domestic banks (four of which are relatively large).”
The six banks “de facto appear to form two groups of banks (involving five of the six largest domestic banks) having combined market share of 60–70 percent of banking system assets.”
In two of these banks there is a significant large exposure risk, with “aggregate large exposures being well in excess of the banks’ capital.”
These banks also have relatively large exposure risk to foreign banks.
Stress testing undertaken for the FSAP “suggests a potential vulnerability to credit risks, particularly as regards foreign currency denominated loans.”

Concentration risk: Six banks dominate the system, with two implicit groups among five of the six largest banks, producing a combined market share of 60–70 percent of assets.
Large-exposure risk: At least two banks have aggregate large exposures that exceed their capital, indicating heightened systemic vulnerability.
Cross-border exposure: Relatively large exposure to foreign banks increases contagion and external risk channels.
Credit-risk vulnerability: FSAP stress testing flags potential weaknesses concentrated in foreign currency denominated loan portfolios.

Prioritize crisis resolution preparedness given concentrated banking market structure and sizable large exposures.
Strengthen tools and frameworks to manage large-exposure events and cross-border transmission risks.
Address vulnerabilities in foreign currency loan portfolios identified by stress testing to reduce credit-risk amplification in a crisis.